What is FHA Loan? Know the details
If you are looking for home finance options, chances are you have heard about FHA insured loans. Home financing is an important aspect since it can make the home buying process easy and affordable. FHA home loans have existed since 1934 and many have been benefited because of the home loans insured by the federal government.
Many people considering home buying are at a loss as to which home loan would benefit them in the best way. If you are one of them, we can help you choose the best suited loan option for you. People who have chosen FHA loans over other conventional loan programs are not on happy, but they have been able to repay the loans without hassles.
To help you decide whether opting for FHA loans would be the best financial decision, here are the details about the FHA insured loans.
What is FHA Loan?
FHA loans are mortgages issued by federally approved lenders and are insured by the Federal Housing Authority (FHA). FHA loans are designed for people with low income, who are unable to pay huge down payments (as required by conventional loans). The FHA protects the lenders in case the borrower defaults, which means, the loss incurred by the lender would be compensated by FHA.
Because of this guarantee, the lenders are willing to offer large mortgages at very flexible and lenient terms. FHA home loans are perfect for first-time buyers as well as those looking to relocate to a new house. You will be able to buy a property with as little as 3.5% down payments. Borrowers of FHA loans need to pay a mortgage insurance premium, which equals to 1% of the total loan amount during the closing.
Why would you Choose FHA Home Loans?
There are many reasons why you would choose an FHA loan over other loan programs. The major reasons being these loans are available for sub-prime or less-than-perfect credit scores and very low down payments are required. Traditional lenders would prefer having a down payment that is equal to 20% of the house price or a minimum of 5%, which is a must. On the other hand, FHA requires down payments as little as 3.5%. Secondly, traditional lender will not be willing to work with people having FICO scores less than 640 or 680, whereas, you can get FHA loans even if your scores is as low as 580.
One more reason why you would want to choose FHA home loans is that, the debt-to-income ratios requirements for FHA home loans is higher than any other home loan program. One more unique aspect of FHA loans is that, you are able to use gift funds as down payments and this gift fund can come from friends, relatives or any government down payment assistance program.
Borrower Eligibility for FHA Loans
- The borrower should have a valid Social Security number
- The borrower should be an U.S citizen or have evidence of permanent residency in U.S
- The borrower should be old enough to sign a mortgage in his/ her home state
- The borrower must be buying a 1-4 unit property which would be used as the primary residence.
Common Myths Associated with FHA Loans
- The Federal Housing Authority (FHA) is a mortgage lender
- FHA loans are available only for first time buyers
- FHA requires 20% down payments
- FHA loans require high credit scores
- FHA loans are expensive
If you want further details about FHA home loans and its qualification requirements, call us today!